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GCC Growth Hampered By Low Populations

An A.M Best report says local insurance markets will experience steady but restricted growth.

Low population numbers in GCC countries is restricting the scale of growth throughout the region’s insurance markets, an A.M Best Co report has claimed.

The credit rating agency also said “fierce” competition among local insurers was hampering growth in some segments.

“Foreign insurers and reinsurers are aware of the opportunities the GCC offers in comparison with the West’s stagnant insurance markets. However, competition, particularly among local insurers, remains one of the biggest challenges to companies operating within the GCC,” said Yvette Essen, head of market analysis for A.M. Best’s global financial services division.

Not having the capacity to rely solely on investment income to shore up balance sheets in light of the unstable equity markets is another challenge that insurers face, according to Essen.

But Essen, the author of A.M Best’s GCC: Rich in potential but hurdles remain report, insisted insurers were well placed to ride out the ongoing global uncertainties.

“The companies in the region, in general, are well capitalised – A.M Best downgraded just one GCC insurer in 2009. The region’s insurance growth rate has moderated since the downturn, but no absolute drop in business has been noted.”

An increase in personal line business across some GCC markets is expected once compulsory motor and health insurance cover are introduced. Meanwhile, A.M. Best believes development of the Takaful industry could exceed steady growth levels from the past two years.

Overseas insurers and reinsurers will continue looking for opportunities to establish a presence in the GCC, leading to greater competition, takeovers and joint ventures.

The report also said that diversification of product lines through life and family products could improve profitability.